Monetarists – Milton Friedman believed that the only serious cause of cyclical instability is located in the monetary side of the economy. Central banks must ensure that the money supply grows at a slow & steady rate to avoid crises.

Keynesians – Keynes differentiated between household (consumer) spending & investment by entrepreneurs. The former relatively constant but the latter was unstable due to ‘animal spirits’. Hence the instability was located in the real economy not the monetary side. The third sector, government, was required to bring stability by spending when private sector investment was low & running a surplus when there was a boom – stabilisation policies.
The government spending when recession threatened was to be financed by borrowing, not from taxes, & so put the hoarded money to use.

‘Crowding-Out’ – Monetarists argued that Keynesian fiscal stimulus financed from borrowing would ‘crowd-out’ private sector investment. As Keynes recognised, if there is insufficient money available for lending, government deficits will raise long-term interest rates. This could threaten to raise interest rates & so reduce the rate of profit available for enterprises & so reduce the level of capitalist investment, making the problem it was trying to resolve worse.
Keynes also advocated a rapid growth in the money supply when recession threatened as he saw no inflationary threat when there was idle capital.

Generalised Overproduction – Overproduction of commodities relative to the ability to pay

Value – Abstract human labour creates value, not concrete labour. It is a homogenous social substance, not a physical one.

Commodity money (Gold) – gold is rare. It can represent a large amount of value in a small size & its high price limits its use in production. Price is a weight of gold. Gold is directly social, other commodities have to be sold on the market first to validate their portion of social labour time to determine their price.

Token Money – Governments declare a paper currency as legal tender for payment of all debts. If over-issued it will lose value against gold. Token money is the same as fiat money. Money currency is not denominated in labour time as it would expose the fact that labourers get paid less than the value they create. Currency is a representation of commodity money. Token money doesn’t represent abstract human labour directly. Money has to be a commodity that must actually be produced by value-creating human labour.

Credit Money – The original pound notes issued by the BofE were credit money as the notes were payable in a certain amount of gold. Credit splits the act of buying from the act of paying; paying with credit, not money & incurring a debt that has to be paid in money. The universal equivalent that measures value can only be played by a money commodity like gold. Credit money is always payable in another form of money, either token or commodity money. Fractional Reserve Banking allowed banks to create a supply of credit money. Credit money permits overproduction on a gigantic scale.

‘Monetary Crisis’ – At some point issuers of credit money will find themselves unable to raise enough metallic or token money to redeem all the credit money they have created, e.g. bank run.
“ The function of money as the means of payment implies a contradiction without a terminus medius. In so far as the payments balance one another, money functions only ideally as money of account, as a measure of value. In so far as actual payments have to be made, money does not serve as a circulating medium, as a mere transient agent in the interchange of social labour, as the independent form of exchange-value, as the universal commodity. This contradiction comes to a head in those phases of industrial & commercial crises which are known as monetary crises. Such a crisis  occurs only where the ever-lengthening chain of payments, an artificial system of settling them, has been fully developed. Whenever there is a general & extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly & immediately transformed from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, & their value vanishes in the presence of its own independent form. On the eve of this crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere money alone is a commodity. As the hart pants after fresh water, so pants his soul after money, the only wealth. In a crisis, the antithesis between commodities & their value-form, money, becomes heightened into an absolute contradiction. Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank note.” Marx, Capital, Ch.3 Vol I

$ System –

August 2007 speculators dumped the $ & bought gold & other commodities as they expected the Fed would turn to the ‘printing presses’ to resolve the ‘credit crunch’.

Oil $75 in Aug. 07 increased to $147 in July 08

Gold $672 in Aug. 07 increased to $964 in July 08

This increase in prices meant more $’s were required, but the Fed hadn’t increased the amount of $’s by much & when the markets realised they panicked & collapsed

Gold fell to $724 in Oct 08

Gold is an alternative to the $


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